Yes, the news is grim, but the first step toward operating in a place of calm is to gather perspective and facts. Today I’m offering both.
I’ve been doing some research to better understand how a recession will affect real estate. According to the National Bureau of Economic Research, a recession is defined as a significant decline in economic activity spread across the economy lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.
COVID-19 hit the pause button on our American economy in the middle of March. Goldman Sachs, JP Morgan, and Morgan Stanley are all predicting a deep dive in the economy in the second quarter of this year. While today we may not be in a recession by the technical definition of the word, most people believe that history will show we were in one from April to June 2020. Does that mean we’re headed for a housing crash like what we saw in 2007 through 2009?
History shows that most recessions do not negatively impact home values, with two recent exceptions: the Gulf War recession of ‘90 to ‘91, and the Great Recession of ‘07 to ‘09. No other recessions have impacted the U.S. housing market. What are economic leaders saying about this downturn?
Robert Dietz, chief economist with the National Association of Homebuilders stated, “The housing sector enters this recession underbuilt rather than overbuilt. That means as the economy rebounds, which it will at some stage, housing is set to help lead the way out.”
“Most people believe that history will show we were in a recession from April 2020 to June 2020.”
Ali Wolf, chief economist with Meyers Research stated, “Last time, housing led the recession; this time, it’s poised to bring us out. This is the Great Recession for leisure, hospitality, trade, and transportation, in that this recession will feel as bad as the Great Recession did for housing.”
Lastly, John Burns, of John Burns Consulting states, “Historical analysis showed us that pandemics are usually V-shaped (sharp recessions that recover quickly enough to provide little damage to home prices), and some very cutting-edge search engine analysis by our information management team showed the current slowdown is playing out similarly thus far.”
Here’s the bottom line: We’re not in a recession yet, but we’re about to be in one. The difference is, this time, real estate will be the sector that leads the recovery.
I hope that you and your family are staying healthy as we all continue to respect our statewide shelter-in-place order. If you find yourself in a place of fear, please remember: This too shall pass. We’ll get through this together.
If we can assist you in any way and help you to have a firmer grasp on what’s happening in the real estate market, please feel free to reach out to us by phone or email. We’re always here for you.